In his latest New York Times column, Nobel prize-winning economist Paul Krugman states that the U.S. is “…on the cusp of an energy transformation, driven by the rapidly falling cost of solar power.” Public support of renewables from someone as well-respected and visible as Krugman gives major kudos to the solar industry.
But Krugman’s endorsement of solar energy is even more compelling when renewables such as solar are juxtaposed with fossil fuel-based electricity. Under our current centralized, aging system that’s vulnerable to a number of external threats (just look at the recent nor’easter and the resulting 830,000 outages), the cost of electricity to consumers, businesses and society at large is intrinsically linked to the price of fuel.
Accordingly, when demand goes up for electricity that’s generated by large, centralized, fossil-fuel based plants, price goes up. The opposite is true with most renewables: the price of electricity based on solar goes down with large-scale demand.
There is a massive benefit from increased demand and scale in a system based on efficiency and renewables that gets completely lost in a fossil fuel-based electricity system.
RMI’s latest work, Reinventing Fire, imagines a future state where distributed renewables — combined with a renewed focus on energy efficiency, smart-grid technology, and electric vehicles—replace our current centralized system.
But such a transition won’t happen overnight. Krugman’s concerns that our nation lacks the political will to transform the existing electricity system are valid. Fossil fuel industry incumbents, hesitant politicians on both sides of the aisle, and taxpayers are deeply concerned about government support of renewable energy.
Let’s assume that Krugman’s federal-level political resistance to renewables stymies new subsidies or extensions of existing incentives. Does that necessarily eliminate the role of technologies like solar in our electricity future?
Absolutely not. Businesses and private industry were the major players behind the Moore’s law-type cost reductions experienced in the solar industry and they will be the ones that push renewables into the mainstream—with or without subsidy. Currently, RMI is involved in several initiatives with the solar industry that address Krugman’s concern for the political system and focus on the other half of the solar cost equation: balance-of-system (BOS) costs. RMI and the industry see the real potential of a competitive industry without subsidy by the end of the decade.
Such costs—think “hard” ones like racking systems and “soft” ones like permitting, financing, and inspection—drive over half of the cost of solar but can be reduced through sharing of best practices and collaborative work with utilities, local jurisdictions, and manufacturers.
Although currently more expensive on a price per kilowatt-hour basis than traditional baseload sources of generation, solar is a proven, cost-effective source of electricity that’s here to stay. And, don’t forget: costs will continue to come down on the BOS side of the equation regardless of the incentive environment or highly visible collapses of firms like Solyndra.
The political system will only delay a transformation of our energy system if we let it. Now is the time for businesses to pick up their piece of the $5 trillion pie that comes from a society-wide transition away from the current centralized, vulnerable system to a future state based on energy efficiency and distributed renewables.